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Class Action Against State of Michigan: Taxation of State Pensions (Okrie vs State of Michigan)

See all updates and background

Michigan SERA Council Chair Bob Kopasz and I attended the oral argument in these cases. The make-up of the court makes me think the employer will likely win.

Supreme Court Tackles State Employee RTW, Pension Cases

Gongwer 1-13-15   The Supreme Court was essentially asked to rule that unions, or at least collective bargaining, are a condition of employment, but pensions are not in two key state employment cases argued Tuesday. In deciding what is a condition of employment for state civil service workers, the court could also be determining the limits of authority for the Civil Service Commission.

Union attorneys urged the court to overturn the Court of Appeals ruling (International Union v. Green, SC docket No. 147700) that the new right-to-work law applies to state employees, but to uphold the appellate court’s finding (Michigan Coalition of State Employee Unions v. Michigan, SC docket No. 147758) that only the commission can approve the 4 percent surcharge the Legislature added to cover retirement health care costs.

Most of the questioning came from Republican members of the bench, and often they appeared unsatisfied with both sides’ definition of conditions of employment. William Wertheimer, attorney for the state employee unions in both cases, said the Court of Appeals crossed a long-established line in finding right-to-work applied to state employees. “The commission alone regulates conditions of employment for classified employees,” he said. “The Legislature’s not allowed to meddle with classified employment.” Unions, he said, are not conditions of employment. But collective bargaining is, making the agency fees the unions charge legitimate. “The issue is a fee which the parties negotiated,” Mr. Wertheimer said. “It pays for collective bargaining that the commission has decided is an appropriate way to deal with the employee-employer relationship.”

But justices questioned whether the commission had the sole authority to make that decision. Justice Stephen Markman noted that the Constitution provides the commission the authority to regulate conditions of employment. “Perhaps the term ’regulate’ should be given its ordinary meaning ... Something distinctive from legislative,” he said. “The Legislature has the distinctive authority relative to hours and conditions.”

But Chief Justice Robert Young Jr. questioned what collective bargaining is if it is, as Assistant Solicitor General Ann Sherman argued, not a condition of employment.

Ms. Sherman agreed with Justice Mary Beth Kelly that it is a process of negotiating conditions of employment. “It’s a relationship with a third party that to some extent impacts many areas of employment, but is not itself a condition of employment,” Ms. Sherman said of collective bargaining. Ms. Sherman said mandatory union dues or agency fees also run afoul of the Constitution’s plan for paying for state employment oversight: the 1 percent of payroll provided to the commission. “The 

The people appear to have intended that the 1 percent wouldn’t be passed on to the (employees),” she said. “Who pays for it is important ... Because the 1 percent is in the Constitution.” She said the bargaining process is also outside the bounds of the Constitution because the commission essentially delegates that to the Office of the State Employer in the Executive Office rather than conducting those talks itself. “Collective bargaining is not consistent with the whole idea of a civil service commission,” Ms. Sherman said, adding that collective bargaining was not considered when the provisions regarding the commission were added to the Constitution. If the drafters of the Constitution had wanted to include collective bargaining, “they could have said all conditions of employment and all mechanisms leading to those conditions,” Ms. Sherman said. “And that would have been more clear?" Mr. Markman said.

John Bursch, former solicitor general in this case representing the Michigan Chamber of Commerce, said the Constitution provided a hierarchy of powers. “The Legislature has authority to enact laws,” he said. “The commission has the lesser power to regulate.” If the commission had the authority to exempt itself from the right-to-work law, Mr. Bursch said, what would stop it from ignoring other laws like the Elliott-Larsen Civil Rights Act or child labor laws. “The people drafting the Constitution knew how to exempt the Civil Service Commission from legislative authority if they wanted to,” he said.

Though the role of appellant and appellee switched, state and union attorneys made essentially the same arguments on the retiree health care charge. Pension benefits are not a condition of employment, Assistant Attorney General Pat Fitzgerald said, because they were created by the Legislature. And the commission essentially conceded it had no role. “If that were the case (that the commission has exclusive authority), then the Civil Service Commission has been missing in action for the last 70 years while the Legislature illegally acted,” Mr. Fitzgerald said. He noted that, while constitutional provisions on the commission do not mention pension benefits, provisions regarding State Police troopers do, so arguably pension benefits were not meant to be considered in the former.

Mr. Young and Mr. Markman both noted that the Constitution provides the Legislature with veto power over pay increases, but not over pension benefit changes.

Mr. Wertheimer countered that the commission, not the Legislature, came up with the idea of a pension. “Before it was enacted by the Legislature, the commission was retiring people on its own,” he said. “The commission has been involved in the pension fund from the beginning.” And he said there was some thought that the Legislature has the authority to veto pension changes. He noted the Legislature’s attempt to overturn providing health care benefits to same sex couples.

Mr. Young countered that, since the Legislature failed in that attempt, its use of that power had not been tested in the courts. Mr. Wertheimer said pension benefits are also clearly a condition of employment. “If I’m an employee, whether or not I have a pension and I have to pay for it, that’s compensation and a condition of employment,” he said. Mr. Young questioned why, then, the commission was merely an amicus to the case and not a party. “You indicated they didn’t have power more than any citizen has: to petition the Legislature for relief,” Mr. Young said.

Ms. Kelly questioned what authority the commission would have to overturn the legislative change. “Once you want the form of a pension that’s inconsistent with what the Legislature proposes and funds, the CSC doesn’t have the resources to fund their proposal,” she said.

Mr. Wertheimer said the commission would have to do what the unions have done: challenge the legislation in court.

See the briefs on International Union v Green (right to work case)

See the briefs on Michigan Coalition of State Employee Unions v Michigan (4% pension contribution)

See the oral argument

Special Report on Civil Service Commission Action Concerning Retiree Health Benefits

Background — On December 18, SERA Coordinating Council Chair Bob Kopasz testified before the Michigan Civil Service Commission concerning the Employment Relations Board’s Impasse Panel recommendation to put all active state employees in the New State Health Plan negotiated for state employees hired after April 1, 2010. The NSHP significantly raises co-pays, deductibles, co-insurance, and out-of-pocket maximum. Bob reminded the Commission that state retiree’s average income is $19,500 per year with a $300 maximum annual increase (active employees’ average income is $56,835 and a 2 percent wage increase for 10-1-14).

Bob expressed our concern that the proposed Impasse Panel recommendations, if applied to state retirees, will have a significant negative impact on the ability of retirees to afford their health care benefit.

Here is a summary of the proposed NSHP cost-sharing schedule:

BenefitCurrentNSHP proposed
Prescription Drug Copays (retail)$10/20/40$10/30/60
Prescription Copays (mail order)$20/40/80$20/60/120
Emergency room co-pay if not admitted$50$200
Coinsurance0%10% up to out of pocket max
Out-of-Pocket Max$1000/2000$2000/4000
HMO deductible$0$125/250
Office visits$15$20
Autism benefits added to health plan  
Adding Dental Plan coverage for implants  

SERA CC Chair Bob Kopasz speaking to the Michigan Civil Service Commission about the proposed health care benefit cost increases, December 18, 2013.

Bob reminded the CSC that historically, non-represented state employees and state retiree health plans have tracked whatever the state employee unions have negotiated in their contracts. In the State Employees Retirement Act (Public Act 240 of 1943) Section 38. 20d, it states that insurance premiums for retirees “shall be in the same proportion of premium payable by the state of Michigan for the classified employees occupying positions in the state civil service.” However, there were exceptions made for prescription drug and other co-pays in 2008 for pre-1987 retirees. Those differences in co-pays were adopted by the CSC in a Memorandum of Understanding dated August 20, 2008 — with an effective date of October 1, 2008. So there was precedent for a different set of co-pays for some retirees than active state employees and these were determined long after active state employee benefits were adopted.

At the December 18 meeting, the CSC deadlocked on approving the Impasse Panel’s recommendations and tabled the matter until January 15. It urged the Office of the State Employer and the unions to negotiate some more and come to a resolution. We assumed that we would be meeting with the Office of the State Employer and Civil Service Commission Benefits staff in the coming months to exchange views on applying the NSHP to retirees.

January 15 CSC meeting — To our great surprise, we received the CSC’s proposed meeting agenda on Friday, January 10 and on it was an item labeled “Interagency Agreement – MOU [Memorandum of Understanding] Retiree Health Benefit.”

Bob acquired a copy of the MOU immediately and found it was already signed by Budget Director John Nixon. It proposed that state retirees be put into the NSHP with no modifications on October 1, 2014. Since Bob and his committee had not yet met with OSE or CSC staff, Bob called the Chair of the Commission Charles Wardrop, OSE Director Jan Winters, and Acting State Personnel Director Janet McClelland to request that the item be removed from the agenda since we had not yet had any joint meetings. Otherwise Bob would have to testify about past practice. There seemed to be agreement with our point of view. However, just in case, Bob prepared some testimony pointing out that the increases in the proposed MOU range from 66 percent to 400 percent!

At the Civil Service Commission meeting, Bob, Cheryl Streberger and Mary Pollock along with a standing room only crowd and media witnessed the MOU being removed from the agenda. Apparently there was a discussion in the CSC’s pre-meeting meeting and our viewpoint was heard!

On the proposed contracts, the Commission heard from the parties and a representative from the Department of Treasury concerning the reported $1.2 billion dollar surplus. Commissioner Robert Swanson then moved to approve the Impasse Panel recommendations with three key amendments. First, to make the contract one year instead of two; second, to keep the health care plan at status quo (which the unions wanted); and three, to remove the .5 percent one-time lump sum proposed for 10-1-14. What seemed like a perfect solution to us failed to garner three of the four possible Commission votes. A vote was then taken on approving the Impasse Panel proposal, which passed 3-1. Commissioner Swanson explained his Yes vote by saying a No vote and deadlock would leave the unions without a contract at all. He felt it was better for the unions to have a contract even if the benefits were not what they wanted. Commissioners Barrett and Wardrop voted Yes. Commissioner Blockett voted No.

We look forward to meeting with state officials concerning retiree health benefits over the coming weeks.

Bob sends his thanks to the 50 people who submitted their out-of-pocket health care expenses to him. He intends to draw from these in upcoming meetings with OSE and CSC staff to explain how severe these proposed out-of-pocket costs will be to state retirees and particularly lower-income state retirees. Over 20,000 state retirees have pensions below $1200 per month/$14,400 per year.

Michigan SERA Pens Agreement with VBS and APSA for SERA Membership Recruitment Program

On Tuesday, February 14, 2012, Michigan SERA Coordinating Council Chair Bob Kopasz signed an agreement with Voluntary Benefits Solutions (VBS) and the America’s Professional Services Association (APSA) to coordinate membership recruitment for SERA on a statewide basis. APSA will contact state employee retirees to offer them a one year free membership in SERA, which will now bring with it not only current SERA chapter programs such as meetings and newsletters, but numerous additional SERA Plus benefits provided through APSA. These include first-year free tax preparation and group discounts on services in the areas of estate planning, tax planning, home and auto insurance, financial services, mortgage services, estate transfer strategies, final settlement planning, and much more.

Recent state retiree and SERA member Cheryl Streberger will be the SERA Plus Program Manager. She will represent APSA with the Michigan SERA Coordinating Council and the 21 SERA Chapters. Some of her duties will include coordinating all SERA Plus marketing activities with all chapters, acting as a liaison between APSA leadership and SERA leadership, and handling any questions from local chapters and members of SERA. She will also make presentations about joining SERA at the Civil Service Pre-Retirement Orientation sessions. Learn more about Cheryl on the SERA Plus contact page.

APSA is a non-profit, non-partisan organization providing access to great discounts on services in many areas of retirement living.

The toll free number for state retirees and near retirees to access SERA Plus benefits through APSA is 855-SERA-PLUS (737-2758).

Pictured, left to right, at the agreement signing are Richard David James, Consultant to APSA and CEO of Financial Services of America headquartered in Warren, Michigan; David Reusser, President of SERA-Detroit Area Chapter #3; Tim Easterwood, Area President, Voluntary Benefits Solutions of Troy, Michigan, a Division of Gallagher Benefit Services, Inc.; Bob Kopasz, Chair, Michigan SERA Coordinating Council; Mary Pollock, Michigan SERA Legislative Representative; David Cook, President, Ionia-Montcalm SERA Chapter #6.

About Michigan SERA

SERA is an non-profit organization devoted exclusively to issues and concerns of all current and future retirees of the State of Michigan.

SERA works to:

  • keep Michigan state employee pension and insurance benefits secure.
  • assure pension and insurance benefits are improved and keep up with inflation.
  • monitor and take action on important developments affecting state pension and retiree health care benefits.
  • inform its members about proposed federal and state legislation that will affect State of Michigan retirement systems and retiree health care.
  • stay in touch with old friends and make new friends with a common background.
  • monitor the State Employees Retirement Systems Board, the Investment Advisory Committee (which makes recommendations to the State Treasurer on investments in the State Employees Retirement System pension fund), and the 401K and 457 programs provided through ING.
  • work with the Office of Retirement Services and Civil Service Benefits Division to help retirees and near retirees with their pension and benefits issues.
  • provide SERA PLUS, great discounts and services in many areas of retirement living such as first-year free tax preparation, estate planning, tax planning, home and auto insurance, financial services, mortgage services, estate transfer strategies, final settlement planning, and much more through SERA’s association with America’s Professional Services Association.

SERA works through its members, leaders, and committees to promote the best interests of state employee retirees and future retirees. At least eight times since 1974, SERA was a moving force in pension increases or benefit improvements. In 2011, we opposed the pension tax and helped eliminate it for 70% of retirees; we opposed the remaining tax on public pensions for those born after 1945 in the Michigan Supreme Court. We opposed the recent state employee retirement system changes. That work continues.

SERA has 21 local chapters statewide that are linked through the Coordinating Council of the State Employee Retirees Associations of Michigan (the SERA Coordinating Council). SERA chapters have periodic meetings with guest speakers, opportunities for networking, newsletters, and other activities.

SERA welcomes the new ideas and energy of new members! To join, call 855-SERA-PLUS (737-2758).